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Should you pay off your mortgage or invest?

Author

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  • Michelangeli, Valentina

Abstract

The mortgage payoff dilemma affects many retirees that have enough financial assets to pay off their mortgage. I find that, on average, retirees with less than $300,000 in non-housing financial wealth are better off keeping the mortgage and investing.

Suggested Citation

  • Michelangeli, Valentina, 2012. "Should you pay off your mortgage or invest?," Economics Letters, Elsevier, vol. 115(2), pages 322-324.
  • Handle: RePEc:eee:ecolet:v:115:y:2012:i:2:p:322-324
    DOI: 10.1016/j.econlet.2011.12.021
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    References listed on IDEAS

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    1. John Y. Campbell & João F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1449-1494.
    2. Orazio Attanasio & Sagiri Kitao & Giovanni L. Violante, 2010. "Financing Medicare: A General Equilibrium Analysis," NBER Chapters,in: Demography and the Economy, pages 333-366 National Bureau of Economic Research, Inc.
    3. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
    4. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2002. "The Importance of Bequests and Life-Cycle Saving in Capital Accumulation: A New Answer," American Economic Review, American Economic Association, vol. 92(2), pages 274-278, May.
    5. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
    6. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
    7. Olivieri, Annamaria, 2001. "Uncertainty in mortality projections: an actuarial perspective," Insurance: Mathematics and Economics, Elsevier, vol. 29(2), pages 231-245, October.
    8. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
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    Citations

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    Cited by:

    1. Stefan Groot & Arjan Lejour, 2017. "Tax arbitrage incentives for mortgage prepayment behavior: Evidence from Dutch micro data," CPB Discussion Paper 350, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    Keywords

    Mortgage; Welfare; Elderly;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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